Marginal cost

Marginal cost is an important concept in microeconomics. Marginal cost refers to the cost that arises when a company produces one additional unit of a product.

The marginal cost depends on costs for personnel, capital and materials in a company. The marginal cost increases with increased volume because resources are scarce and it costs more and more to utilize more resources. A company will want to sell more units of a product if their marginal revenue is higher than their marginal cost.

The price of a company's products and the quantity of their production will be the price and the volume that applies when the marginal revenue equals the marginal cost.